Speculative FX trading is traded on margin. This means that you are able to leverage your investment by opening positions that are larger in size than the cash on your account.
You are said to be leveraged or geared when you are trading with borrowed money. Many traders use leverage because, in general, currency pairs make only very small moves day to day, so leverage is a way to make more money from these incremental price changes.
Leverage amplifies both profits and losses, so it can be dangerous if not handled correctly, and you could lose more than you actually deposited. If you deposited £1,000 and your broker allowed you leverage of 100:1, you would actually have £100,000 to trade, and your margin - the money your broker requires for you to open a position - would be 1%. If, at any point, the equity in your account is not enough to cover a possible loss, your broker can step in and liquidate your trades - this is a margin call and can be very expensive and painful if your losing trade is closed out before it has a chance to rebound.
To help manage leverage, you might need to use stop loss orders to limit the amount of money you could potentially lose on a trade, and keep close tabs on your account balance at all times.
You can access much higher leverage in the FX market than in any other - some brokers will offer 500 times leverage or even more. This is why small, retail traders are becoming increasingly attracted to FX, where they tend to get access to higher levels of gearing than they would elsewhere and potentially greater rewards - as well as, of course, greater risk.